Moody’s Credit Opinion on Barbados – How the Central Bank seeks to defuse it

Moody’s opinion on Barbados’ credit rating remains unchanged since June 2011. In its latest published opinion (July 10), the rating agency maintained a rating of Baa3 on its domestic and foreign currency bonds with the outlook remaining negative.

Rating Rationale

The government’s Baa3 local and foreign-currency bond ratings reflect the country’s medium economic strength, high institutional strength, low government financial strength, and medium susceptibility to event risk.

Credit Strengths

Credit strengths of Barbados are:
– Stable political system and high quality of institutions supported by strong policy consensus
– Dependable local creditor base and high proportion of domestic currency debt
– Relatively high income levels historically supported by strong reputation as tourist destination
– Sound financial system given strong presence of Canadian-owned banks

{Ed’s. Note – So do we always rely on outside interests to throw Barbados a life-raft? Can we not learn to “bootstrap” ourselves into a semblance of fiscal cohesion?}

Credit Challenges

{FILE IMAGE} Credit challenges for Barbados are:
– Large fiscal deficits that are expected to remain high for the next several years
– High and increasing government debt ratios
– Poor economic growth prospects; limited economic diversification; deteriorating competitiveness; growing external imbalances

Rating Outlook

Barbados’ ratings have a negative outlook. The negative outlook reflects Moody’s view that even if deficits continue decreasing slowly as contemplated by the government’s strategy of gradual fiscal consolidation, they are likely to remain large in absolute and relative terms for the next few years. As a result, government debt ratios could soon deteriorate to levels that are not consistent with an investment grade rating. The negative outlook also reflects the possibility that pressures on Barbados’ fixed exchange rate could result due to the increasing current account deficit in a context of the government’s large fiscal deficit.

What Could Change the Rating – Up

Given the negative outlook, Barbados’ ratings are unlikely to face upward pressure in the near-to-medium term.

The outlook could return to stable if Moody‘s determines that (i) the government is likely to exceed the currently anticipated pace of fiscal consolidation, (ii) economic growth is likely to pick up on a sustained basis, and (iii) the government presents a credible medium-term plan to reverse the recent increase in debt ratios

{Ed’s Note – It seems to me this is a fancy way of saying, ‘Things are so bad we can only get better since we are so far down the line‘ without comprehending that that we could be DEAD in the water if it is decided to place Barbados at “Junk Bond” status; a possibility which is not handled in this Document}

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